FBT and Uber
The Australian Taxation Office (ATO) issued on 27 September 2017 discussion paper TDP 2017/2 to seek consultation on its application of the fringe benefits tax (FBT) taxi travel exemption for ridesharing services. After nearly two years of review, the ATO confirmed on July 2019 that it will not extend the taxi travel exemption to ridesharing services such as Uber and Ola.
Employers should now review their expense reimbursement policies in light of the ATO’s confirmed position, as reimbursement for ridesharing travel between work and home could become a much more expensive option.
The Taxi Travel Exemption
The taxi travel exemption was introduced in 1995 to exempt some types of taxi travel from FBT. Limiting exempt travel to taxis sought to ensure that the travel was provided by an arm’s length supplier at commercial rates.
Under section 58Z of the FBT Act, any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work. The exemption also applies where the travel is both a result of sickness or injury to the employee and the whole or a part of the journey is directly between the employee’s place of work and the employee’s place of residence or any other place necessary for the employee to go as a result of the sickness or injury.
A taxi is defined in subsection 136(1) of the FBT Act as a motor vehicle that is ‘licenced to operate as a taxi’.
Licenced to Operate as a Taxi
The ATO has interpreted the meaning of ‘licenced to operate as a taxi’ based on the taxi licencing regime that operates throughout each state and territory in Australia. While the licencing regime is currently being reviewed, ridesharing service providers are currently not considered licenced taxi operators in any state or territory.
The ATO’s interpretation of the meaning of a ‘taxi’ seems somewhat inconsistent with the recent decision in Uber v FCT. The Federal Court in this decision considered the meaning of taxi for GST purposes as ‘a vehicle available for hire by the public and which transports passengers at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a ‘taximeter’. This definition encompassed ridesharing services. The ATO’s reasoning for adopting a different meaning of taxi for FBT purposes is that the term ‘taxi’ is not defined in the GST Act, and accordingly, the Federal Court’s interpretation is necessary for GST purposes. However, for FBT purposes, the term ‘taxi’ is defined, and therefore, a literal reading of this definition will not include ridesharing services.
Next Steps for Employers
Employers may still be eligible for the minor benefits exemption. To qualify for this exemption, the value of the benefit provided needs to be less than $300 and provided on an infrequent and irregular basis. In most cases, taxi travel reimbursed by employers will be less than $300 per trip. The employer will then need to be satisfied that the relevant employee receives this benefit on an irregular and infrequent basis. There is no clear guidance on the meaning of ‘irregular or infrequent’, however MKT considers that a benefit provided less than 1-2 times per month will satisfy this condition.
In light of the published view of the ATO that ridesharing services such as Uber will not be eligible for the FBT taxi travel exemption, employers should review their expense reimbursement policies. If employers are relying on the minor benefits exemption for ridesharing travel, the requirements to satisfy this exemption will need to be considered. Employers may find that the cost savings from the use of ridesharing services may be outweighed by the additional FBT cost.